Bataan Shipyard & Engineering Co., Inc.

May 13, 1982 Bataan Shipyard & Engineering Co., Inc. Engineer Island, Port Area Manila Attention : Mr . Benito R . Cuesta I Corporate Secretary Dear Mr. Cuesta: This has reference to your letter dated April 28, 1982 inquiring whether or not you can validly declare stock dividends the gain you realized from the exchange of your assets with common shares of another corporation. It appears therein that in February, 1978, Bataan Shipyard & Engineering Co., Inc. (BASECO) acquired P75,795,000.00 worth of common shares at par value of Philippine Dockyard Corporation (PDC). As payment for such investment, BASECO transferred to PDC certain parcels of land and shipbuilding equipment with an equivalent appraised value, as reportedly approved by the SEC. Since the historical and acquisition cost of the assets transferred was only P 14,990,050, BASECO has recognized the price difference of P60,804,950.00 as realized profits, as reflected in its 1980 audited financial statements. BASECO is now asking whether or not it can be validly declared both as cash and stock dividends. In reply thereto, inasmuch as the assets disposed of by BASECO had a total cost of only P14,990,050.00 in exchange for common shares of PDC with a total par value of P75,795.00, the price difference of P60,804,950.00 is, therefore, considered profits realized which can be validly declared both as cash and stock dividends provided that 1) the decline in the book value of the stocks of PDC as reflected in its 1979 and 1980 financial statements should be considered in the declaration of dividends and 2) that the issuance of stock dividend be approved by the stockholders representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called for the purpose. Please be guided accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Associate Commissioner